table of ecnomiess

Table 1.5. Trade Balances and International Investment Positions GDP, 2009

Country/Region	Trade Balance (%)	Debtor (−)/Creditor (+) Position (%)
Euro Area	−0.9	−17.5
United States	−3.1	−24.4
China	+6.1	+35.1
Japan	+2.7	+50.4
India	−0.3	−6.8
Russia	+2.2	+15.1
Brazil	−0.8	−26.6
South Korea	+3.8	−57.9
Indonesia	+1.2	−31.4
Spain	−5.7	−83.6
South Africa	−5.4	−4.1
Estonia	+5.8	−83.1

Table 1.5, “Trade Balances and International Investment Positions GDP, 2009” shows the most recent trade balances and international investment positions, both as a percentage of GDP, for a selected set of countries. One thing to note is that some of the selected countries are running trade deficits while others are running trade surpluses. Overall, the value of all exports in the world must equal the value of all imports, meaning that some countries’ trade deficits must be matched with other countries’ trade surpluses. Also, although there is no magic number dividing good from bad, most observers contend that a trade deficit over 5 percent of GDP is cause for concern and an international debt position over 50 percent is probably something to worry about. Any large international debt is likely to cause substantial declines in living standards for a country when it is paid back—or at least if it is paid back.

The fact that debts are sometimes defaulted on, meaning the borrower decides to walk away rather than repay, poses problems for large creditor nations. The more money one has lent to another, the more one relies on the good faith and effort of the borrower. There is an oft-quoted idiom used to describe this problem that goes, “If you owe me $100, you have a problem, but if you owe me a million dollars, then I have a problem.” Consequently, international creditor countries may be in jeopardy if their credits exceed 30, 40, or 50 percent of GDP.

Note from the data that the United States is running a trade deficit of 3.1 percent of GDP, which is down markedly from about 6 percent a few years prior. The United States has also been running a trade deficit for more than the past thirty years and as a result has amassed a debt to the rest of the world larger than any other country, totaling about $3.4 trillion or almost 25 percent of U.S. GDP. As such, the U.S. is referred to as the largest debtor nation in the world.

In stark contrast, during the past twenty-five or more years Japan has been running persistent trade surpluses. As a result, it has amassed over $2.4 trillion of credits to the rest of the world or just over 50 percent of its GDP. It is by far the largest creditor country in the world. Close behind Japan is China, running trade surpluses for more than the past ten years and amassing over $1.5 trillion of credits to other countries. That makes up 35 percent of its GDP and makes China a close second to Japan as a major creditor country. One other important creditor country is Russia, with over $250 billion in credits outstanding or about 15 percent of its GDP.

Note that all three creditor nations are also running trade surpluses, meaning they are expending their creditor position by becoming even bigger lenders.

Like the United States, many other countries have been running persistent deficits over time and have amassed large international debts. The most sizeable are for Spain and Estonia, both over 80 percent of their GDPs. Note that Spain continues to run a trade deficit that will add to it international debt whereas Estonia is now running a trade surplus that means it is in the process of repaying its debt. South Korea and Indonesia are following a similar path as Estonia. In contrast, the Euro area, South Africa, and to a lesser degree Brazil and India are following the same path as the United States—running trade deficits that will add to their international debt.

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Key Takeaways

• Exchange rates and trade balances are two of the most widely tracked international macroeconomic indicators used to discern the health of an economy.
• Different countries pursue different exchange rate regimes, choosing variations of floating and fixed systems.
• The United States, as the largest national economy in the world, is a good reference point for comparing international macroeconomic data.
  
  • The United States maintains an independently floating exchange rate, meaning that its value is determined on the private market.
  • The United States trade deficit is currently at 3.1 percent of GDP. This is down from 6 percent recently but is one of a string of deficits spanning over thirty years.
  • The U.S. international investment position stands at almost 25 percent of GDP, which by virtue of the U.S. economy size, makes the United States the largest debtor nation in the world.
• Several other noteworthy statistics are presented in this section:
  
  • China maintains a crawling peg fixed exchange rate.
  • Russia fixes its currency to a composite currency while Estonia uses a currency board to maintain a fixed exchange rate.
  • Japan is the largest creditor country in the world, followed closely by China and more distantly by Russia.
  • Spain and Estonia are examples of countries that have serious international debt concerns, with external debts greater than 80 percent of their GDPs.